Government Shutdown: A Sound Investment?

The recent government shutdown has put the US economy in a state of limbo. The Republican passed House Resolution 368 altered Congressional rules, effectively barring Democrats from bringing up a Senatorial amendment to provide government funding. A deadlocked Congress has furloughed federal workers, cut budgets, and put many company jobs at risk. Non-profit companies have had federal grants frozen and small businesses suffered from frozen government contracts and stalled loans. The economic pace of the nation and its industries has been severely hindered. The high levels of tense uncertainty have caused both emotional and financial distress. Historically, national anomalous calamities have witnessed the stock market tend toward volatility—and the current government shutdown is upholding this precedent. Investors are currently grappling with the paramount question of sensible response to the government shutdown. 

My advice is both cautious and relieving: Don’t panic, but keep your eye on the market. In late September, the threat alone of a government shutdown evoked widespread investor fear, and US futures plummeted. However, judging on past shutdowns, the market usually absorbs short term crises and moves on. After the 17 government shutdowns in US history, the post-shutdown market increased on average by 2.5% after three months, and 13.3% over the next year. The volatility of the shutdown market may cause uncertainty and stress, but they do not diminish investment prospects. The price declines may present a good opportunity to buy sound investments whose value may increase at the end of the shutdown.  Hedging investments on previous results is a safer bet than giving in to the whims of a shutdown market. But be wary, the past performances of the stock market never guarantee the future. 

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Nyall Islam

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